Memory chip manufacturer Micron Technology Inc. (MU) intends to expand its footprint in China with the opening of its second operating unit in Xi’an.
Micron stated that the unit is under construction and is likely to be operational within the next three to five years, depending on existing market conditions. The idea behind this expansion is to complement Micron’s existing facility in Xi’an, which was built in 2007.
The first Chinese facility was designed for assembly and test operations of Micron’s semiconductor products, including dynamic random access memory (DRAM), NAND flash memory and CMOS image sensors.
The new semiconductor Test and Module Assembly unit will accommodate Micron’s Asian customers. The Asia-Pacific region has been growing in leaps and bounds over the past few quarters. Consequently, Micron is building capacity to support the growing demand.
Since 2001, Micron has been building its presence in China with an integrated-circuit design center and a memory design center in Shanghai; a manufacturing plant in Xi’an, logistic centers in Xiamen; and sales offices in Beijing, Shanghai and Shenzhen.
As per findings of the U.S. research firm IDC, the Chinese semiconductor market could surpass the $28 billion mark in 2011. We believe that Micron is well positioned to capitalize on this opportunity, also benefiting from the abundantly available cheap labor and good export prospects.
We are also encouraged by Micron’s recent divestiture. Earlier this month, Micron announced its intention to sell out its wafer manufacturing facility in Nishiwaki City, Hyogo, Japan, to TowerJazz (TSEM) for a sum of $140.0 million. There remains a chance of disruption in Micron’s DRAM chip production capabilities, given suspended operations at wafer-manufacturer Shin-Etsu Chemical and slow recovery at MEMC Electronic Materials Inc. (WFR).
We are also positive about Micron’s second quarter 2011 results, as both top and bottom lines exceeded the Zacks Consensus Estimates. However, the decline in average selling price during the quarter, competition from SanDisk Inc. (SNDK) and pending lawsuits are concerns.
Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.
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